When China’s telecom regulator handed out 4G licenses on Wednesday, no one was terribly surprised – although the awards did come a few weeks earlier than some expected. This sounds like great news for the world’s largest mobile phone operator, China Mobile (CHL.NYSE, 0941.HKG), which has almost 760 million subscribers. The company has been rolling out its high-speed network for more than a year and is well positioned to sign customers up for the service, which could cost twice as much as 3G. Apple (APPL.NASDAQ) was also no doubt delighted to hear the news. The US technology firm has been waiting patiently for access to China Mobile’s hordes of customers as a channel to sell phones. Not so happy are China’s two smaller mobile operators, China Unicom (CHU.NYSE, 0762.HKG) and China Telecom (CHA.NYSE, 0728.HKG). Although they both grabbed licenses to operate 4G services, the companies are far behind their big brother in terms of rolling out networks. “China Mobile is now in a very strong position in the 4G market but it raises concerns of a monopoly,” Bertram Lai, an equities analyst at CIMB, said on Thursday from Hong Kong. That could be the downside to this major advantage, Lai said. At present, charges on calls between the three operators’ networks are symmetrical. This means that the fee China Mobile collects when a China Telecom user calls into its network are the same for the other operators. Due to its huge subscriber base, many more people call into China Mobile, resulting in a net profit. This could change. Worries over China Mobile’s monopoly could push the regulator to make the fees asymmetrical, resulting in a profit for smaller operators. This is one reason why Lai has a neutral rating on China Mobile. It’s a small caveat in a huge deal but it could impact revenues.
The upside to an airline shakedown
They weren’t necessarily escorted off of a plane. But the detention of 10 China Southern Airlines (ZNH.NYSE, 1055.HKG, 600029.SHA) employees, reported late last week, was still dramatic. Two of the company’s deputy marketing directors are under duress in some undisclosed location while the government investigates a pricing scam allegedly run by the individuals. The detained employees are accused of buying up tickets early at a 60% discount and then selling them off later after the price had risen. So anyone out there who flew Southern China and thought their economy seat was expensive might have a beef with the company. Investors might have a different outlook. In Hong Kong, the airline’s share price dropped early Monday on the announcement of the probe but has since recovered. This is one of several probes to hit state-owned firms this year, the biggest being the attack on PetroChina (PTR.NYSE, 1857.HKG, 601857.SHA) earlier this year. While these investigations are very different in nature – the PetroChina probe is highly political while China Southern is likely not – both could benefit the companies in weeding out corruption in the future. In the airline’s case, company leaders claim they alerted the police to the ticket scheme. “The incident could reflect management’s increased focus on corporate governance and indicates improved yields management, in our view,” Patrick Xu at Barclays Research said in a report on Monday. The carrier’s tickets may have been a bad buy for passengers but on the long term its stock could be a good one for investors.
It’s just a pile of rocks in the sea
It’s a miracle. While China and Japan clashed over a few rocks in the East China Sea, Toyota Motors (TM.NYSE, 7203.TYO), Japan’s biggest automaker, somehow managed to shift 89,800 vehicles on the mainland in November, a peak in sales for 2013 and a 41% increase. Such a jump would be counter-intuitive during the same month that China announced an Air Defense Identification Zone encompassing the Diaoyu islands, to which Japan, the US and South Korea all responded by flying jets through. China says all crafts entering the zone must notify the Chinese military. It’s a nationalist clash waiting to happen but investors in Toyota will have to wait until December figures are released to see if the latest developments – some of the brashest ever made by China – hurt sales. That’s because China announced the zone on November 23. If Chinese consumers have responded to the notes patriotism by not buying a Japanese car, the number won’t show that until the next month. However, there is good reason to believe that Japanese car will do well in China in 2014 – island or no island. China Economic Review noted in August that a shortfall in investment in the mainland by the country’s three biggest automakers, Toyota, Nissan and Honda, was the main reason that sales tapered off, not the territorial dispute. The “big three’s” boosted investment in mainland plants and the introduction of new SUV models should help companies maneuver the waves and avoid the rocks on the East China Sea.
IPO watch
For more than a year now, all important Chinese IPO news has happened off the mainland. China Economic Review‘s coverage of upcoming floatations by and large focus on Hong Kong and, more recently, New York. But perhaps the biggest news in Chinese IPOs this week is an announcement from China’s security regulators that listings in Shanghai and Shenzhen will resume soon, after more than a year without a single floatation (though there were some backdoor listings). Foreign investors with access to mainland securities will be cautious, however. Liquidity is low and several big IPOs here could see the situation deteriorate. There are no scheduled mainland-linked IPOs next week in Hong Kong. China Cinda Asset Management, a state-owned company that managed bad-debt, raised US$2.5 billion in an offering on Thursday, the biggest Chinese IPO of the year.
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